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Announcement:

Moody's maintains the rating of the State of Baja California of Aa1.mx and revises the outlook to negative

Global Credit Research - 14 Dec 2012

Mexico, December 14, 2012 -- Moody's de Mexico revised the outlook on the issuer ratings of Aa1.mx (Mexico National Scale) and Baa1 (Global Scale, local currency) of the State of Baja California to negative from stable.

RATINGS RATIONALE

The negative outlook reflects Baja California's challenges to rebalance financial results, stabilize debt levels and rebuild a weak liquidity position. In the last three years Baja California recorded cash financing requirements averaging a low -2.9% of total revenues. The state had expenditure pressures in 2010 related to the reconstruction of damages caused by a major earthquake and floods caused by atypical rains in the City of Ensenada. In 2011, an internal reorganization resulted in substantial lay off payments. These events resulted in the state registering cash financing requirements equivalent to -4.3% and -3.8% of total revenues in 2010 and 2011, respectively. According to financial results for October 2012, expenditure growth continues to outpace revenue growth. Moody's estimates that the state will record a cash financing requirement of around -4% of total revenues in 2012.

As a result of these cash financing requirements, Baja California's net direct and indirect debt is expected to reach 19% of total revenues in 2012, up from 7.8% in 2009. While debt levels remain moderate, the state's liquidity position is weak. Net working capital to total expenditures was equivalent to -1.1% in 2011. We note that the state has taken measures to increase own-source revenues, however it will continue to face expenditure pressures in the near to medium term, including large pension liabilities. The state will begin paying teacher's pensions in 2013 equivalent to around 2% of total revenues, therefore constraining the state's financial flexibility.

What Could Change the Rating -- Up/Down

While we do not expect upward pressure on the ratings, if Baja California rebalances its financial results, annual borrowing requirements stabilize and the tight liquidity does not weaken further, the outlook could return back to stable.

If Baja California continues to record cash financing requirements that lead to further weakening of liquidity or increase debt levels a downgrade on the state's ratings could take place.

The methodologies used in this rating were "Regional and Local Governments Outside the US," published in May 2008, "The Application of Joint Default Analysis to Regional and Local Governments," published in December 2008, and "Mapping Moody's National Scale Ratings to Global Scale Ratings" published in October 2012. Please see the Credit Policy page on www.moodys.com.mx for a copy of these methodologies.

The date of the last Credit Rating Action was 25 September 2007.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.mx.

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

Maria del Carmen Martinez-Richa
Asst Vice President - Analyst
Sub-Sovereigns Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereigns Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's maintains the rating of the State of Baja California of Aa1.mx and revises the outlook to negative
No Related Data.
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